This post was contributed by a guest author, and does not necessarily
reflect the views of Richard or MovetheMarkets.com
I won’t make any obvious references to an extremely popular movie. Its bad enough that we’re labeled trekkies around here.
Force index = (Close [today] - Close [yesterday]) * Volume
This indicator was also made by Dr. Alexander Elder (the R guy). Richard brought up a valid point about the bull and bear power indicators I was using. I still found that helpful, but it didn’t really tell you much that you couldn’t eyeball. I guess that’s why he’s been profitable longer, and more consistently, than me. I needed the indicator to tell me what he was already seeing. I found no problems with it, but I may have found something slightly more uselful, and definitely easier to watch.
I stumbled across the force indicator, and looked over the charts of the limited range data that I have. Incredible charts gives a good overview of the indicator.
My chart setup uses a 10-period weighted moving average, and the force index is calculated with the same parameters. I also don’t necessarily see the need in waiting for the turn in the MA, or the flattening out of it, to take profits. I would suggest playing the price action with tried and true setups, and using the force index to increase consistency/profitability.
If Force index flattens out it indicates that either (a) volumes are falling or (b) large volumes have failed to significantly move prices. Both are likely to precede a reversal.
Looking at one indicator is easier than watching two, and since it factors in what I consider to be the relevant information on volume, then this may be a good replacement. There is nothing new in this post. Its just another way for me to identify good reversal candidates. I guess you recognize the pattern in this chart, so there is no need to go over that. Can you say, One Trick Pony?
Edit: I just noticed something. When I was using the bull/bear power indicators, it didn’t give me enough information. A few minutes ago, I pulled up a change chart with the Force indicator. Man o’ Man! It looks like we have a winner. Not only did it identify each of the trades that would have signaled (most of them anyway) with the range chart, it made it easier to follow breaks. That’s what I originally noticed when I first looked at the change charts. I was already leaning towards the Force indicator, because of the simplicity. Now its a slam dunk, since I can use the change charts. It looks like it should provide opportunities in more than one way. Now, I may be a Two Trick Pony!
This post was contributed by a guest author, and does not necessarily
reflect the views of Richard or MovetheMarkets.com
